In this chapter of our Annual Insurance Review 2020, we look at the main developments in 2019 and expected issues in 2020 for financial professionals.
Key developments in 2019
Once again, defined benefit pension transfers dominated the landscape for financial professionals.
In 2019, the Financial Conduct Authority (FCA) completed an extensive survey of firms holding pension transfer permissions, with 3,015 firms responding to a data request. The results caused the FCA yet more cause for concern. One issue was the volume of transfers that have taken place; between April 2015 (the advent of Pension Freedoms) and September 2018 234,951 customers received advice, with 69 per cent being advised to transfer – a worry for the FCA given the starting assumption is that a transfer will be unsuitable for most. Furthermore, the sums involved are significant, with the average transfer value being £352,303 and a total sum transferred of £82.8 billion.
The FCA has now made further enquiries of firms where the potential for harm to clients exists. The increased pressure has led to some big players leaving the market and continues to cause headaches for remaining firms. What we don't know yet is how exactly the FCA will look to rectify the perceived issues; a heavy handed approach could lead to a massive burden on the Financial Services Compensation Scheme (FSCS) in circumstances where (at present at least) actual complaint volumes have been low as customers are presumably happy with the significant capital sums obtained.
As well as defined benefit pension transfers, claims against self-invested personal pension (SIPP) administrators and operators have continued to blossom, though many are still awaiting the outcome of the now well overdue decision in Adams v Carey (likely to be the first judgement ruling on SIPP operators' legal duties).
Finally, the rash of interest only mortgage claims pursued by ambulance chasing law firms continue to proliferate and will need careful and coordinated handling into next year.
What to look out for in 2020
2019 was the year in which the FCA published its finalised guidance on crypto assets, and scrutiny in this area is set to ramp up in 2020, as the FCA will become the anti-money laundering and countering terrorist financing supervisor for firms carrying on crypto asset activities from 10 January. The FCA is already part of the Cryptoassets taskforce, which also includes HM Treasury and the Bank of England.
The FCA's new role comes about as a consequence of increased concern about crypto assets being used to fund illicit activities; the Treasury has noted that the pseudo-anonymous nature of such assets (and their global reach) made it possible to obfuscate the source of funds, making them attractive to criminals. Beyond this, crypto assets are viewed by FCA as high risk and speculative.
From 10 January 2019 onwards, all businesses carrying on certain crypto asset activities need to be registered with the FCA, whose consultation on proposals for recovering the costs involved with their new role closed in December – we await the final rules in early 2020.
Such assets may appear attractive in times of flat growth but advisors should be aware that this is an area of regulation that is very much in its infancy. However, given the high risk nature of such assets, combined with the money laundering risk, we can expect a heavy degree of involvement from the regulator and the scope for claims here is potentially significant.